Chapter 4

 What is Credit?  Installment Debt ◦ Durable Goods ◦ Longer Term = BUT  Longest Terms  Up to 30 years

$ 1,000 Installment Loan At9 % Interest Term Of Loan 24 Months36 Months Monthly Payments$45.69$31.80 Total Interest Paid$96.56$ Total of Payments$ $

 Checklist for Using Credit for Purchases ◦ Do I really require the item? Can I postpone purchasing? ◦ If I pay cash, what will I be giving up that I could buy with these funds? ◦ If I borrow, will the satisfaction I get from using the item now outweigh the interest paid? ◦ Have I done comparison shopping for credit? ◦ Can I afford to use credit now?

◦ Offer widest variety of services  Interest rates usually slightly lower than commercial  Savings Banks ◦ Lend money for mortgages, auto and personal loans ◦ Many also offer checking and other commercial functions  Credit Unions ◦ Higher interest earnings and lower interest charges  Finance Companies ◦ Installment debt for stores

 Charge Accounts or Charge Card ◦ Buy goods from a particular company or store  Set amount can be charged  No interest if paid in specified amount of time  Very high interest rate if unpaid on time ◦ Revolving Charge Account ◦ Installment Charge Account  Principal and Interest paid monthly  Credit Cards ◦ Difference between Charge Cards? ◦ Difference between Debit and Credit Cards?

 Finance Charges? ◦ Interest costs + any other costs with having Credit  Dollar and Cents cost of credit ◦ Computed in 4 Ways (Next Slide)  Annual Percentage Rates ◦ Also included is any non-interest cost of credit

 Previous Balance Method  Adjusted Balance  Average Daily Balance  Past Due Balance

 I can apply for credit and understand what factors will determine if I can get credit

 How does a person get credit?  Private Business ◦ Credit Check  (debt:income, length at job, unemployed), character, any collateral  What determines a person’s creditworthiness? ◦ Higher the score better potential to get loan  AnnualCreditReport.com  Equifax, TransUnion, and Experian – 1 Free a year  FROM EACH COMPANY 

 Having many open accounts ◦ Stays for 10 years  Unemployment  Secure Loan vs. Unsecured loan ◦ Cosigner?

 I can identify steps to get out of trouble if I misuse credit

 Itemize Debts  Contact Creditors  Seek help from Government/Financial Advisors  Eliminate High Interest Debt First  Create another Budget and LIVE BY IT

 Loan is a Promise!! ◦ If you don’t repay, creditor loses $  Losses passed off to others ◦ Hurts credit rating  Keep track of all charges ◦ Immediately report Fraud, Lost or Stolen Card  Visit Financial Counselors for Help if Needed ◦ Consolidate Loans ◦ Pay High Interest First ◦ Pay more than Minimum Payment

 I know the laws protecting me as a borrower and the negative impact Bankruptcy has on my life.

 The Truth in Lending Act (1968)  The Equal Credit Opportunity Act (1974) ◦ Cannot deny because income comes from public assistance  State Usury Laws ◦ Limits on amount of interest that can be charged  Consumer Finance Agencies allowed higher because loans are high risk

 THIS IS THE FINAL RESORT!!!  What is Bankruptcy?  How does Bankruptcy work? ◦ Taxes, Child support, Alimony, School Loans MUST be repaid ◦ Stays on record for 10 years ◦ Constitution allows Congress to make laws on Bankruptcy  The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 Encourages people to file Chapter 13 vs. Chapter 7

Chapter 7Chapter 13  Disadvantages: ◦ Give up all assets  Exempt – Jewelry, work tools, household furnishings  Turned over to a Trustee  Gets Liquidated ◦ Cannot file for 8 years  Advantages: ◦ Gets rid of unsecured debt ◦ Stops foreclosure, garnishment, utility shut- offs  Disadvantages: ◦ Must show plan to rid debt in next 3-5 years  Advantages: ◦ Can keep chosen property ◦ Can refile in as little as 2 years if needed ◦ Stops foreclosure, garnishment, utility shut- offs